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I'm thinking about drilling out the top-tube brake cable stops on my steel bike so that I can run housing all the way to the back.

My rationale: My older Cannondale road bike runs housing the full length of the cable to the rear brake. It's really smooth-- I can barely tell the difference between the front and rear.

On my steel bike -- a cyclocross bike -- the rear brake cable is typical in that the center portion is exposed (to mud, water, etc.). Add to that the extra interfaces with the two additional housing ferrules-- I believe that these cause drag and that the fewer housing ferrules in a run of cable, the lower the drag. The rear brake performance is already suffering and there is a lot of drag in the system-- I'm having to increase the spring tension in the cantilevers. All cables and housing are only a few months old.

I intend to try this out first by just zip-tying the rear brake cable housing along the TT and make sure everything works okay.

Has anyone here drilled out steel cable stops? Would I need a special drill bit? Any other considerations?

Steel frames usually have the stops brazed on - no drilling required. More like grinding it off.

However, I'd keep them on and simply zip tie the cable housing.

cdr

__________________
"...during the Lance years, being fit became the No. 1 thing. Totally the only thing. It’s a big part of what we do, but fitness is not the only thing. There’s skills, there’s tactics … there’s all kinds of stuff..." Tim Johnson

I think he means drilling out the small side so that both sides have diameters large enough to accept cable housing. Then that will be used to hold the cable + housing to the top tube.

lol ok that would be reasonable.

cdr

__________________
"...during the Lance years, being fit became the No. 1 thing. Totally the only thing. It’s a big part of what we do, but fitness is not the only thing. There’s skills, there’s tactics … there’s all kinds of stuff..." Tim Johnson

I would use a Dremel tool, but with a carbide or diamond round burr. Wrap some heavy tape, like Duct tape, around the TT and braze-on, exposing only the area you are grinding, so that if the Dremel goes off target, the cosmetic damage will be minimal. Go at it very slowly and keep enlarging the opening until you reach the proper size. Good luck!

You probably have water and dirt in your current housings if you find the pull isn't smooth.

+1 on the Dremel.

A drill bit and drill won't have the clearance, and the drill bit will bounce and bind.
A round or taper carbide cutter will be more stable. But it will kick back too and possibly damage the finish. Use caution and prevention like Seres advised.
The diamond dust cutter will be even better, but requires water cooling and high rpms.
A shaped grinding stone will work, but also high rpms and needs heat to work well. But the heat will damage the paint.